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Public Utility District No. 2 of Pacific County v. Comcast of Washington IV, Inc.

Court of Appeals of Washington, Division 1

April 8, 2019

PUBLIC UTILITY DISTRICT NO. 2 OF PACIFIC COUNTY, a Washington municipal corporation, Respondent,
v.
COMCAST OF WASHINGTON IV, INC., a Washington corporation; CENTURYTEL OF WASHINGTON, INC., a Washington corporation; and FALCON COMMUNITY VENTURES I, L.P., a California limited partnership, d/b/a CHARTER COMMUNICATIONS, Appellants.

          Dwyer, J.

         Pacific County Public Utility District No. 2 (District) permitted Comcast of Washington IV, Inc., CenturyTel of Washington, Inc., and Falcon Community Ventures I, L.P., d/b/a Charter Communications (collectively Companies) to attach their communications equipment to the District's utility poles pursuant to written agreements. In 2007, the District instituted significant increases to the rates it charged the Companies to attach their equipment to the utility poles. The Companies refused to pay the increased rates, and also refused to remove their equipment from the District's utility poles, leading the District to bring this lawsuit.

         In 2008, our legislature amended the statute governing utility pole attachment rates, RCW 54.04.045, effective June 12, 2008. The amendment included a specific rate calculation formula, the result of which would yield a "just and reasonable" rate. RCW 54.04.045(3)(a)-(c). Whether the District's revised rates complied with the amended statute became the central dispute of the case.

         This is the second time that this matter has come before us on appeal. See Pub. Util. Dist. No. 2 of Pacific County v. Comcast of Wash. IV. Inc., 184 Wn.App. 24, 336 P.3d 65 (2014) (hereinafter PUD I). In deciding the first appeal, we held that none of the parties correctly interpreted the statutory formula set forth by the amended statute because, instead of interpreting and applying the words of the statute, the parties attempted to shoehorn the statutory language into various preexisting formulas. We rejected this "closest to the pin" method of statutory interpretation, PUD I, 184 Wn.App. at 64, and remanded the matter for the parties to determine whether the District's rate was in compliance with the formula as it is set forth by the words of the statute.

         In the trial court-and now on appeal-the District and the Companies derived different mathematical formulas from the words of the statute. Furthermore, the parties also dispute the validity of various data and inputs that the District utilized when calculating the maximum permissible rate allowed by the statute. We are presented with two principal issues: (1) whether the District abused its discretion when calculating the data and inputs it utilized to calculate the maximum permissible rate pursuant to RCW 54.04.045(3), and (2) whether the trial court erred by accepting the District's interpretation of the language set forth in RCW 54.04.045(3)(a). We affirm the trial court with respect to the District's choice of data and inputs, but reverse the trial court's interpretation of the language set forth in RCW 54.04.045(3)(a). However, because the trial court's error in interpretation herein was harmless, we affirm the judgment.

         I

         The District is a consumer-owned utility organized as a municipal corporation pursuant to RCW 54.04.020. It provides electricity to customers in Pacific County. PUD I, 184 Wn.App. at 35. The District owns and maintains utility poles that it uses to provide its services, and to which it also permits third parties to attach communications equipment. PUD I, 184 Wn.App. at 35.

         The Companies provide a variety of communication services to customers in Pacific County by attaching their communications equipment to the District's utility poles. PUD I, 184 Wn.App. at 35. The Companies initially attached their equipment to the District's utility poles pursuant to rental agreements assigned to them by previous communications providers in Pacific County. PUD I, 184 Wn.App. at 35. The assigned agreements date back to the 1970s and 1980s with respect to Comcast and Charter, and to the 1950s and 1960s with respect to CenturyTel. PUD I, 184 Wn.App. at 35.

         Prior to 2007, the District's annual pole attachment rates had remained fixed for 20 years at $8.00 per pole for telephone companies and $5.75 per pole for cable companies. PUD I, 184 Wn.App. at 36. In February 2006, the District informed the Companies that it intended to terminate the agreements and provide the companies a new pole attachment agreement and new pole attachment rates. PUD I, 184 Wn.App. at 36. The new rates would take effect on January 1, 2007. PUD I, 184 Wn.App. at 36.

         To set its new rate, the District relied on a rate study, performed several years earlier, by EES Consulting, Inc. PUD I, 184 Wn.App. at 36. EES recommended that the District increase its rate to at least $20.65 per pole but preferably closer to $36.39 per pole. PUD I, 184 Wn.App. at 36. The study considered four different formulas for calculating the pole attachment rate: the United States Federal Communications Commission (FCC) Cable formula,[1] the FCC Telecom formula, [2] the American Public Power Association (APPA) formula, [3]and the Washington PUD Association formula.[4] PUD I, 184 Wn.App. at 36-37. After considering and discussing the results of the study with the District's supervisors, the District's general manager recommended to the District's board of commissioners an annual rate of $19.70 per pole, to take effect at the start of 2008.[5] PUD I, 184 Wn.App. at 37.

         The board of commissioners held public hearings on the proposed rate increases on December 5, 2006 and December 19, 2006. PUD I, 184 Wn.App. at 38. Even though the Companies knew about the public hearings, they did not send any representatives to attend, nor did they request the agenda or minutes from the hearings. PUD I, 184 Wn.App. at 38. On January 2, 2007, the board of commissioners adopted Resolution No. 1256, which accepted the proposed rates. PUD I, 184 Wn.App. at 38.

         Subsequently, the District sent new agreements, incorporating the new rates, to the Companies and other then-current licensees for signature, explaining that all licensees must either sign the new agreement and pay at the new rate or remove their equipment from the District's utility poles. PUD I, 184 Wn.App. at 39. However, the Companies refused to sign the new agreement, declined to remove their equipment, and tendered payment only at the historical rates.[6] Although the existing agreements between the District and the Companies permitted the District to remove the Companies' equipment, the District chose not to exercise this right. PUD I, 184 Wn.App. at 40. Instead, the District filed complaints against the Companies alleging claims of breach of contract, trespass, and unjust enrichment and seeking a declaratory judgment, injunctive relief, and damages. PUD I, 184 Wn.App. at 40. The Companies counterclaimed and sought to enjoin the District from imposing terms in violation of RCW 54.04.045. PUD I, 184 Wn.App. at 40. The lawsuits were consolidated by agreement.

         Meanwhile, in March 2008, the legislature amended RCW 54.04.045, with an effective date of June 12, 2008. Laws of 2008, ch. 197, § 1. The prior version of the statute required only that pole attachment rates charged by Washington Public Utility Districts be "just, reasonable, nondiscriminatory and sufficient." Former RCW 54.04.045(2) (1996). This prior version did not provide any specific formula for calculating an appropriate rate. The amendment, however, instituted the following specific formula, the result of which would constitute a "just and reasonable rate." RCW 54.04.045(3).

(3) A just and reasonable rate must be calculated as follows:
(a) One component of the rate shall consist of the additional costs of procuring and maintaining pole attachments, but may not exceed the actual capital and operating expenses of the locally regulated utility attributable to that portion of the pole, duct, or conduit used for the pole attachment, including a share of the required support and clearance space, in proportion to the space used for the pole attachment, as compared to all other uses made of the subject facilities and uses that remain available to the owner or owners of the subject facilities;
(b) The other component of the rate shall consist of the additional costs of procuring and maintaining pole attachments, but may not exceed the actual capital and operating expenses of the locally regulated utility attributable to the share, expressed in feet, of the required support and clearance space, divided equally among the locally regulated utility and all attaching licensees, in addition to the space used for the pole attachment, which sum is divided by the height of the pole; and
(c) The just and reasonable rate shall be computed by adding one-half of the rate component resulting from (a) of this subsection to one-half of the rate component resulting from (b) of this subsection.

RCW 54.04.045.

         The legislature also included the following provision relating to subsection (3)(a):

For the purpose of establishing a rate under subsection (3)(a) of this section, the locally regulated utility may establish a rate according to the calculation set forth in subsection (3)(a) of this section or it may establish a rate according to the cable formula set forth by the federal communications commission by rule as it existed on June 12, 2008, or such subsequent date as may be provided by the federal communications commission by rule, consistent with the purposes of this section.

RCW 54.04.045(4).

         The legislature provided a statement of legislative intent with the amendment, which states:

It is the policy of the state to encourage the joint use of utility poles, to promote competition for the provision of telecommunications and information services, and to recognize the value of the infrastructure of locally regulated utilities. To achieve these objectives, the legislature intends to establish a consistent cost-based formula for calculating pole attachment rates, which will ensure greater predictability and consistency in pole attachment rates statewide, as well as ensure that locally regulated utility customers do not subsidize licensees. The legislature further intends to continue working through issues related to pole attachments with interested parties in an open and collaborative process in order to minimize the potential for disputes going forward.

Laws of 2008, ch. 197, § 1.

         Whether the revised rate was in compliance with the amended statute became the central dispute in the case. Specifically, the parties disagreed about the proper interpretation of the space allocator component[7] of the statutory formulas in subsections (3)(a) and (3)(b).

         Following a bench trial, the trial court issued a memorandum decision in which it ruled in favor of the District and against the Companies. PUD I, 184 Wn.App. at 42. The trial court ruled that the new pole attachment rates and the new agreement were valid and granted the District its requested relief. PUD I, 184 Wn.App. at 42-43. The Companies appealed.

         II

         On appeal from the first bench trial, the District and the Companies each asserted that the formula set forth in RCW 54.04.045(3) is actually just a combination of preexisting formulas.[8] PUD I, 184 Wn.App. at 58-59. In our decision rejecting their proposed formulations, we explained that neither attempted to apply the language of the statute as written. Instead, during the trial, the parties presented expert witness testimony that attempted to compare the language of the statute to preexisting formulas to show how the statutory formula hewed more closely to their chosen formulas. PUD I, 184 Wn.App. at 58-59. These experts compared the statutory language to existing formulas, operating under the assumption that each subsection of the statute corresponded to a preexisting formula.[9] PUD I, 184 Wn.App. at 63-71.

         A

         The District asserted that its expert's interpretation of subsection (3)(a) as the FCC Telecom formula was correct.[10] Additionally, the District asserted that its expert's interpretation was entitled to the deference courts show to agencies interpreting statutes that they are charged with administering. The District's primary support for its assertion that the formula was the FCC Telecom formula was that subsection (3)(a) could not be the FCC Cable formula. According to the District, the FCC Telecom formula and subsection (3)(a) both reference unusable space, [11] but the FCC Cable formula does not.[12]

         Additionally, the District averred that subsection (3)(a) could not be the FCC Cable formula because subsection (4) explicitly authorizes the use of an alternative between using subsection (3)(a) or the FCC Cable formula.[13] The District asserted that framing the choice between subsection (3)(a) and the FCC Cable formula as an alternative in the statute would be wholly nonsensical if subsection (3)(a) was the FCC Cable formula.[14]

         In contrast, the Companies asserted that their expert's interpretation of subsection (3)(a) as the FCC Cable formula was correct.[15] Additionally, the Companies asserted that the District's interpretation was not entitled to any deference and that we should interpret the statute de novo.[16] The Companies presented three reasons why the space allocator formula in subsection (3)(a) is the FCC Cable formula and not the FCC Telecom formula. First, the Companies asserted that subsection (3)(a) and the FCC Cable formula provide for a space allocator that assigns costs in proportion to the space used for the pole attachment. Second, the Companies asserted that the FCC Telecom formula distributes two-thirds of the cost of unusable space on the pole based on the number of attaching entities. In contrast, according to the Companies, subsection (3)(a) and the FCC Cable formula do not assign costs based on the number of attaching entities and contain no reference to two-thirds of unusable space on the pole. As a result, the Companies reasoned, subsection (3)(a) cannot be the FCC Telecom formula and must be the FCC Cable formula.[17] Finally, the Companies asserted that subsection (3)(a) must be the FCC Cable rate because its language is virtually identical to the rate formula set forth in RCW 80.54.040, which has been interpreted by the Washington Utilities and Transportation Commission (WUTC) to be the FCC Cable formula.[18]

         B

         In our decision, we rejected the trial court's and the District's interpretation of the statutory formula set forth in subsection (3)(a). PUD I, 184 Wn.App. at 63-67. We held that the trial court erred by deferring to the testimony of the District's expert witness, and that by so deferring the trial court erred by failing to apply the language of the statute as written. PUD I, 184 Wn.App. at 62-67.

         We first concluded that "no evidence was presented to the trial court that the PUD commission ever applied the unique formula in the amended statute to determine whether its revised rate was in compliance." PUD I, 184 Wn.App. at 62. Therefore, the trial court's decision to defer to the District's interpretation was not appropriately deferential to the District's board of commissioners but, rather, was inappropriately deferential to the District's expert witness. PUD I, 184 Wn.App. at 63. We further explained that even if the trial court had deferred to the District, rather than to an expert witness, such deference was inappropriate herein because the District is not the only public utility implementing the statute. See PUD I, 184 Wn.App. at 60-61 ("With regard to the methodology set forth in subsections (3)(a), (b), and (c), that methodology must be applied. Uniformity could not be achieved if the courts deferred to 28 different PUD commission interpretations of the meaning of the words in a state statute.").

         We next decided that the mistake of inappropriately deferring to the District's expert witness was compounded by the fact that the District's expert "evinced a disregard for the words of the statute as written by the legislature." PUD I, 184 Wn.App. at 63. The District's expert witness compared the language of the statute with the language of preexisting formulas and then applied those formulas rather than simply applying the language of the statute itself. PUD I, 184 Wn.App. at 63. We expressly rejected this "closest to the pin" method of statutory interpretation, PUD I, 184 Wn.App. at 64, explaining,

Accepting that the legislature, in drafting the amendment, was unaware of these preexisting formulas-despite explicitly referencing one of them in RCW 54.04.045(4)-would require, on behalf of the trial court, a willing suspension of disbelief. Yet, by sanctioning [such an] approach, the trial court, in effect, ruled that while the legislature was aware of these various preexisting formulas, and although it intended to make subsections (3)(a) and (3)(b) reflect two of the established formulas, it instead wrote a unique formula with distinctive features.

PUD I. 184 Wn.App. at 63 (footnote omitted).

         However, because the Companies' expert witness utilized the same "closest to the pin" approach to interpreting the statute, we did not rule that their interpretation of the statutory language was correct.[19] PUD I, 184 Wn.App. at 63-64. Instead, we remanded the matter with instructions for the trial court to interpret the unique rate formula set forth by RCW 54.04.045(3) "based on the words of the statute and not based on opinions as to what formulas it appears to resemble." PUD I, 184 Wn.App. at 72.

         C

         Although we rejected the trial court's interpretation of RCW 54.04.045(3), we also concluded that "the formula is not designed to ensure mathematical certainty" and that "because the District enjoyed ample discretion prior to the 2008 amendment, the District retains considerable discretion in its rate calculation." PUD I, 184 Wn.App. at 72. We further explained that the lack of any specific instructions regarding a formula in the former version of RCW 54.04.045 required us to show deference to the District regarding the manner in which it calculated the pole attachment rate prior to the effective date of the 2008 amendment.[20] Critically, we also concluded that "the legislature's amendment of RCW 54.04.045 did not fully divest the District of the previously liberal discretion it enjoyed." PUD I, 184 Wn.App. at 72. We noted specifically that the District's discretion with regard to the data, assumptions, and other information it utilized to calculate the attachment rate "was not divested by the 2008 statutory amendment." PUD I, 184 Wn.App. at 61. Therefore, we announced, courts must continue to defer to the discretion of public utility districts regarding the data, assumptions, and other information used to calculate the attachment rate, reviewing them only to determine if they were arbitrary and capricious. See PUD I, 184 Wn.App. at 61-62.

         We emphasized that the District's exercise of discretion should be guided by the policies set forth by the legislature in the statement of intent accompanying the 2008 amendments to RCW 54.04.045. See PUD I, 184 Wn.App. at 73-74. To aid the trial court's review of the District's discretionary exercise of authority, we provided a nonexhaustive list of examples of certain aspects of the rate calculation over which the District retained discretion.

         First, we declared that the District retained the discretion to decide whether to use gross expenses or net expenses when calculating the expenses attributable to attachers. PUD I, 184 Wn.App. at 73. This is so, we explained, because the language of the statute does not specifically define the term "expenses." PUD I, 184 Wn.App. at 73. Additionally, we concluded that the District's choice between the two should be guided by the statement of intent the legislature provided with the 2008 amendment to RCW 54.04.045. PUD I, 184 Wn.App. at 73. In particular, we directed that the choice must be made in accordance with the policies contained in the legislature's statement of intent "'to recognize the value of the infrastructure of locally regulated utilities'" and to "'ensure that locally regulated utility customers do not subsidize licensees.'"[21] PUD I, 184 Wn.App. at 73 (quoting Laws of 2008, ch. 197, § 1).

         Second, we expounded on the District's discretion to determine "whether to designate a portion of the pole as unusable 'safety space' and, if it does so, whether to require the Companies to bear a share of the cost associated with the unusable space." PUD I, 184 Wn.App. at 73. We concluded that the statute does not define that which constitutes unusable space, and that such definition is therefore left to the District's discretion. PUD I, 184 Wn.App. at 73-74. We specifically noted that "instituting a policy of not using the safety space is a prerogative of the District both as a rate maker and as a utility operator." PUD I, 184 Wn.App. at 74.

         Third, and finally, we declared that the District retained the "discretion in the manner in which it calculates the number of licensees that attach per pole." PUD I, 184 Wn.App. at 74. We rejected the contrary assertion by the Companies that, as with the FCC formulas, which require rate makers to assume that there are three attachers per pole, the District was required to assume that there are three attachers per pole while calculating its rate pursuant to the formula in RCW 54.04.045. PUD I, 184 Wn.App. at 74. We concluded that the District's exercise of discretion in this regard "is in harmony with the legislature's stated intent that the amendment 'ensure that locally regulated utility customers do not subsidize licensees.'" PUD I, 184 Wn.App. at 74 (quoting Laws of 2008, ch. 97, § 1).

         In sum, we provided the following direction to the trial court:

On remand, the District must apply the statute as written to the relevant data, albeit subject to the discretion that was not withdrawn by the 2008 amendment. Only after receiving evidence and testimony based both on a proper application of the amended statute and on underlying data that, in the trial court's view, is worthy of being credited may the trial court determine whether the District's revised rates are, in addition to the other requirements imposed by RCW 54.04.045, "just and reasonable."

PUD I. 184 Wn.App. at 74-75.

         III

         Following our ruling in PUD I, the matter was remanded to the trial court for a new trial on the issue of whether the District's new pole attachment rate was in compliance with the amended version of RCW 54.04.045(3). Unsurprisingly, the District and the Companies disputed the correct interpretation of RCW 54.04.045(3)(a) and whether the District had properly exercised its discretion when determining what data to rely on when calculating the maximum allowable pole attachment rate pursuant to subsection (3). Ultimately, the trial court ruled that the District had correctly interpreted subsection (3)(a) and did not abuse its discretion when determining what data to rely on when calculating the maximum allowable pole attachment rate.

         At the remand trial, the District presented exhibits and testimony from the District's general manager regarding the District's process for determining whether its rate complied with RCW 54.04.045(3), as amended. The District's general manager testified that, after reviewing our decision in PUD I. he looked through the amended version of RCW 54.04.045(3)(a) and attempted to convert the language of the statute to a numerical formula. Testifying specifically about his interpretation of the space allocator component of subsection (3)(a), the general manager explained that the space allocator component began with the language "attributable to that portion of the pole, duct, or conduit" and continued until the end of the paragraph. According to the general manager, this language corresponded to a two part mathematical formula in which the parts are added together.

         For the first part, the general manager explained that he considered the language "that portion of the pole, duct, or conduit used for the pole attachment" to ...


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